Oct 29, 2009
Rio 2016 of course!
While the decision who gets to host the Olympics is dirty politics (I'm sorry Barack!), the supply of "fresh, cheap, quality" drugs can be attributed to the miracle of competition!
As the Economist article on Rio "The bottom line " says, there are three large competing drug fractions in Rio. Fierce competition among the gangs is bringing the prices (and I presume quantities) close to the perfect competition outcome.
Is this the way to go? It definitely is, if you believe that humans are truly rational and that drug addiction is in fact utility maximizing.
It might not be, if you think the drug addicts are not fully rational. Monopolistic drug dealer would increase prices and slash quantities sold, so decreasing the number of drug addicts (being drug addict is more expensive => the outside option gets more attractive). On the other hand it would create extra revenues for the drug cartel, these would likely be used in ways not consistent with the "best interest" of the majority society.
Anyway, if watching sporting events and doing crack is your thing, start shopping for a ticket!
Oct 28, 2009
|The Daily Show With Jon Stewart||Mon - Thurs 11p / 10c|
What about the book review PL?
Tim Harford explains how Chris Quanbeck, a Green Bay Packers fan, came up with the idea to auction off possession of the ball in the natural currency of the game: field position. The team willing to begin furthest from its scoring line would receive the privilege of possession. Yeon-Koo Che of Columbia University and Terrence Hendershott of Berkeley formalized the idea. As they explain with the figure below, the auction outcome should end up around the 18 yard line, where the chance of winning is counterbalanced by the risk of a dangerous fumble or interception.
But doesn’t adding luck, in the form of a (random?) coin toss, make the game even more exciting and “human”? I would think that, quite contrary, the auction would add another layer of strategic decisions based on game theory and psychology…in other words, what football fans, such as David Romer and Steve Levitt, really want.
As Quanbeck puts it, “Imagine the excitement of live bidding! Two head coaches meet face-to-face at center-field in a test of guts and strategy. The home crowd goes crazy as the bidding proceeds, imploring their coach to take the ball and drive to victory. However, the hometown coach must stay cool to ensure he doesn’t end up pinned against his own goal-line on fourth down. Either way, the coach has nobody to blame but himself. If you want the ball, take it. But be careful what you ask for”.
Oct 26, 2009
Mr. Volcker is literally and figuratively a "giant", because of his reputation built during his chairmanship of the Fed. The period in which he defeated the high inflation mounting in the US at the beginning of the 1980s is known as Volcker's disinflation. He now and then hired as an external advisor whenever important reforms are needed, and now he is the head the president’s Economic Recovery Advisory Board. While the Obama team is thinking at maintaining the current setup with heavier regulation (changing capital requirements, highlighting guidelines in payment structure for managers), Mr. Volcker is advocating a simpler system where "no bank would be too big too fail", because in his view: “no form of economic organization can fully contain bouts of destructive speculative euphoria”.
Oct 24, 2009
Workshops, conferences and projects aimed at “reducing vulnerabilities” or “reforming governance” are so much more palatable to the organization’s managers than digging up evidence of wrongdoing and pressuring governments to prosecute and recover funds. ....all our workshops and technical assistance may simply provide diversions that allow criminals to get away with their loot."
This is from this CGD post about this book.
Oct 23, 2009
"Prof. Anspach played his first game of Monopoly as a child in the mid-1930s in Czechoslovakia. In 1938, his family fled Europe to America on the cusp of the Holocaust. Years later, he earned a Ph.D. in economics from Berkeley. One day in the 1970s, he tried to explain oil cartels and the downside of monopolies to his 8-year-old son, William. The economist searched toy stores for a more philosophically pleasing alternative to Monopoly, but found nothing. He then set out to create a game that would be a sort of "Monopoly backwards," in which players compete to break up existing monopolies rather than create them. He called it "Anti-Monopoly.""
What's more, he even uncovered the drak secrets behind the Monopoly board game and fought to break thier monopoly! More in the WSJ.
Oct 22, 2009
Square A seems significantly darker, doesn't it? It turns out, both are the same color... I think the perceived color difference is even bigger in the second case: Compare the color of the little squares that are in the middle of sides of the cube. (I marked these squares with a little tick).
The one on the upper side is dark brown, the other one is orange! There seems to be no question about that. Again, both have the exact same dark brown color. Here are the relevant squares (everything around them was deleted).
The question is, can our brain be fooled so easily in different situations? For instance when one assesses probabilities and uncertainty. I think so (I would recommend the Kahneman, Tversky:Judgement Under Uncertainty: Heuristics and Biases).
The real question is whether the "enlighten" policy maker can do anything about it (maybe he suffers from the same bias-VS comment about casinos banning Martingale strategy players on prev. post) and whether he should do anything about it (maybe people are perfectly happy thinking that the little square is orange rather than brown)...
Oct 21, 2009
Oct 20, 2009
This made me wonder why the default plan was so expensive. They are thieves I concluded. Well, turns out I was maybe completely wrong. They could be brilliant choice architects, really.
As I read in the amazing book Nudge, by making the default option unattractive (super expensive), the government forces people to choose the more appropriate plans for themsleves. This stirs competition among plan offers and results in active choices, which, assuming choosers know a lot and policymakers are essentially guessing, is an optimal allocation.
Oct 19, 2009
Oct 18, 2009
I was taught a sure way to win money when playing roulette. You bet on color, if you lose you double your bet, if you lose again, you double your bet again. You keep on doubling bets until you win, wining back all your money plus profits equal to the original stake. You have a chance of winning in the first round close to 50%, and you are sure to recover your money later on. Sounds good, doesn’t it?
Even the gamblers admit there is a problem with it. You might not have enough money to keep on gambling.
They are partly right. In reality the strategy has a negative expected value, no matter how much money you have, you could be Rothschild, Rockefeller, Gates or owner of the entire Universe you are poised to lose money when playing the Martingale Strategy.
The probability of winning in the first round is 18/37. The probability of losing your entire fortune is (19/37)^n where “n” is the number of the round in which you run out of money. The probability of winning your initial bet (recovering all money + initial bet) is (1-(19/37)^n-18/37). It turns out that the expected value of the bet is negative for n=1 (when you can cover only round 1) and is monotonically decreasing in “n” (the more rounds you can / are determined to cover the more negative the expected value of your bet gets)… So running out of cash when playing does not hamper your strategy, it saves your ass!
Obviously the expected utility theory can’t explain why anyone would want to play this strategy. You should be super afraid of big losses. This strategy tells you to take huge bets when things go sour. NO GOOD
Prospect theory can’t explain it either. You should be underweighting probabilities close to 50% and overweighting low-risk high loss events (that’s why you insure). You should never play this strategy. NO GOOD
Biases in the evaluation of disjunctive events (Put simply, breaking a chain of same events). But these should be underestimated! But the gambler apparently overestimates the probability that the chain will be broken and so he wins his money back. NO GOOD
The last line of defense is Regression to the Mean. People are stupid and think that the outcome of round X predicts the outcome in round (X+1). (Red in this round predicts black in the next). I actually think this is it…GOOD
The problem is that “Regression to the mean” is just not rich enough, it doesn’t feel right that people should so easily disregard the huge bets they are potentially taking. People probably think that all previous outcomes predict outcome in this round (the more reds have fallen previously the more confident you feel about black falling this round), on the other hand if many reds have fallen in the previous rounds maybe people will expect more reds to fall… I NEED A PSYCHOLOGIST TO EXPLAIN THIS!!!
If you think this is fascinating, you need to read Judgement Under Uncertainty:Heuristics and Biases, A.Tversky, D.Kahneman. It's one of the most fascinating econ papers ever! (Published in Science, authors are psychologists)
All the computations that show why Martingale Strategy Doesn't work are here. (p.s. It's 1 in the morning, I'll need to recheck the math tmw, but it should be OK).
Oct 17, 2009
I had the pleasure to share with him part of the Gambian Micrometrics Experience.
"The device is an emotion-sensing system designed to help investors keep a cool head when buying and selling [as] day-traders who exhibit more intense emotional reactions have significantly worse trading results."
The bracelet measures changes in the electrical resistance of the skin which can be caused by various stimuli, like anger or elation and transmits it to the “EmoBowl”, which alerts you to stop trading if you’re too hyped!
Maybe this was dreamed up by freshwater economists whose rational expectations models may now become relevant.
ht: The Economist
Oct 16, 2009
Indiana Jones has been spotted in the corridors of Rigot! After cracking the secret of the Holy Grail and the Crystal Scull, it seems that the famous archeology professor has changed his field of interest to CDOs, subprime mortgages and other mysterious objects of our time.
Oct 14, 2009
I think the WB should be downsized and divided into focused and autonomous units. And Bill Easterly or Simeon Djankov should be director. That Brazil and China should have more say in its governance goes without saying.
Oct 13, 2009
Oct 12, 2009
So who cheat more, consultants or academics?
half to Elinor Ostrom from Indiana University, "for her analysis of economic governance, especially the commons"
and half to Oliver E. Williamson from University of California Berkeley "for his analysis of economic governance, especially the boundaries of the firm".
check the Nobel website for more information. Congratulations to both!
Oct 11, 2009
Term : Nobel Prize - People care what kind of prize Obama won
Term : Nobel Prize money - They care even more how much money he actually won
Term : Obama charity - But what they care most for is what the hell is he gonna do with that money
For the last graph: I was looking at some random combinations of the term "Obama" + "word"(for example: Obama radio, Obama car, Obama underpants) and they've increased as well after the Nobel Peace Prize announcement, but by a magnitude less than "Obama Charity".
Oct 10, 2009
The Taliban condemns Obama’s Nobel Peace Prize saying that "[Obama] reinforces the war in Afghanistan, sent more troops to Afghanistan and is considering sending yet more. He has shed Afghan blood and he continues to bleed Afghans and to boost the war here." This being rather an extreme position on the Norwegian Nobel Prize Committee’s decision from this Friday, it is indisputable that Barack Obama’s win has generated mixed reactions across the world. The committee said it honored the American president for his “extraordinary efforts to strengthen international diplomacy and cooperation between peoples.”
Obama is the fourth US President to win the Nobel Peace Prize, however, in contrast to Carter, Roosevelt or Wilson, he has been chosen not for past accomplishments, “but for “vision” and inspiring “hope” at the beginning of his presidency” (CNN). In my opinion such decision above all questions the legitimacy of the Nobel Prize itself. Giving out Nobels for the ability to “capture world’s attention” is bonkers (in a public statement the Committee as part of their explanation supporting their decision has also stated that the US President won because “Only very rarely has a person to the same extent as Obama captured the world's attention”)…
Undoubtedly, the Committee’s irrationality further builds up the anticipation with which many ( I assume) will be awaiting Monday’s Announcement of the 2009 Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel. It just might be so that this year, Thomson Reuter’s adumbrations, are completely off. Creditability may also be a problem with the InTrade and Ladbrokes’ predictions and probabilities (odds) for the 2009 Nobel prize in economics. For example here are Ladbrokes' probabilities:
Eugene Fama 2/1
Paul Romer 4/1
Ernst Fehr 6/1
Kenneth R. French 6/1
William Nordhaus 6/1
Robert Barro 7/1
Matthew J Rabin 8/1
Jean Tirole 9/1
The Inkling Market’s valuations can be just as cocky...
Thus I believe that with the cuckoo nature of the Nobel Prize Committee nowadays any of the following are just as good bets for Econ winners as the Fama, Romer or the others: Bottom line: Even though not as 'bronzato' there is hope for Silivio in the end (at least for the 2010 Nobel Peace Prize)…
p.s. Be sure to turn on your volume when you go to his support website!
Oct 6, 2009
"An emerging-market government can therefore promote this learning process by keeping its currency cheap... This is a tried-and-trusted growth strategy promoted in the past by economists such as Bela Balassa and lately championed by Dani Rodrik of Harvard, among others. In a recent paper Caroline Freund and Martha Denisse Pierola of the World Bank show that sustained export surges in the developing world are often associated with sharp currency depreciations, which encourage entry into new markets and products."